National Bank slashes online trading commissions to zero, putting pressure on competitors

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A bank-owned Canadian online broker has finally matched the zero-commission deals long available to U.S. investors, putting pressure on competitors to follow suit.

National Bank Direct Brokerage, a middle-size company on the rise in my annual broker ranking, has eliminated commissions on online trading of Canadian and U.S. stocks and ETFs. There’s no fine print. In any type of NBDB account, registered or non-registered, you can buy and sell stocks and ETFs listed on North American stock exchanges at zero cost and with no minimums.

NBDB’s old commission was $6.95, at the lower end of a pricing spectrum that goes up to just under $10 at big bank-owned outfits such as TD Direct Investing, RBC Direct Investing and BMO InvestorLine. Other players such as Questrade and Virtual Brokers charge less, but you’ll still pay at least $2 to $5 per trade.

NBDB joins the investing app Wealthsimple Trade in offering zero-commission trading, but the two provide a much different investing experience. Wealthsimple Trade is primarily a platform for trading stocks on your smartphone, though there’s also a web-based service. The appeal is mainly for investors who do everything on their phone and active traders who know what they want and need little in the way of deep market data and research.

NBDB works under the usual online brokerage rules, which means no advice to clients. But it’s much more of a full-service operation. You can buy bonds online, consult research by National Bank Financial and Morningstar analysts and monitor your portfolio diversification and performance.

Zero commissions came to the U.S. market when the Robinhood trading app was founded in 2013. Online brokerages such as Charles Schwab eliminated commissions in the fall of 2019, a development that was met only with cricket sounds in Canada.

The obvious question raised by NBDB’s move is whether its competitors will match it. NBDB president Claude-Frédéric Robert noted that it took years for U.S. brokers to match Robinhood, but the move by Schwab brought other brokers into line immediately. “Hopefully, our [pricing advantage] will last longer than a day,” he joked.

The move to zero commissions at NBDB comes at a crucial moment for an online brokerage business that was swamped in late 2020 and early this year by new clients eager to participate in the pandemic bull market for stocks. The stocks frenzy has died down, which presents a challenge to brokers in attracting new clients and keeping all their existing customers interested, active and loyal. Zero commissions give NBDB a strong advantage over the competition for cost-conscious investors.

Competing aggressively on cost is a whole new look for Canadian brokers, who have consistently charged more than U.S. online brokers. The last time fees changed in a big way at the big bank-owned companies was about seven years ago, when RBC Direct Investing introduced a flat $9.95 commission.

Trading commissions have traditionally provided a significant portion of the revenue generated by online brokers. Mr. Robert said NBDB will rely on revenue generated through various account fees, lending clients money to buy stocks (margin loans), exchanging client money to and from U.S. dollars and interest generated on client cash balances. A marginal amount of revenue comes from routing trades of a small number of U.S. stocks to various market players, he added.

Zero-commission trading should appeal to ETF investors as well as investors who prefer stocks, although it’s already possible to buy ETFs at no cost through several companies. Questrade and Virtual Brokers charge nothing to buy ETFs and regular commissions to sell. BMO InvestorLine, Qtrade Direct Investing and Scotia iTrade have a limited list of ETFs that can be both bought and sold at no cost. Before Monday, NBDB offered commission-free ETF trades to clients buying at least 100 shares.

If you’re a customer of a broker that charges commissions, you now have some questions to answer: How much are you paying in total to trade stocks and ETFs, how big a drag on performance is that cost, and is it justifiable in light of the value you’re getting from your broker through tools and resources to manage your portfolio?

NBDB has made a bet that a lot of people will do this analysis and be open to change.

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